Legislature(2003 - 2004)
05/09/2003 09:02 AM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
May 09, 2003
9:02 AM
TAPES
SFC-03 # 84, Side A
SFC 03 # 84, Side B
SFC 03 # 85, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:02 AM.
PRESENT
Senator Gary Wilken, Co-Chair
Senator Lyda Green, Co-Chair
Senator Con Bunde, Vice Chair
Senator Robin Taylor
Senator Lyman Hoffman
Senator Donny Olson
Senator Ben Stevens
Also Attending: LARRY PERSILY, Deputy Commissioner, Department of
Revenue; MARIA MOYA, Member, Southeast Alaska Friends of
Montessori; ALBERT JUDSON; BOB LOESCHER, President, Juneau Tlingit
& Haida Community Council; GEORGE WRIGHT, Operator, former Self-
Directed Permittee and former Charitable Gaming Task Force member;
AGNES D'CAFANGO, Gaming Employee; DAVID KATZEEK, Member, Alaska
Native Brotherhood; ELLIE MORITZ, Pull Tab Dealer, Alaska Native
Brotherhood Hall; DAVID SANDEN, Coordinator, Juneau Multiple-
Beneficiaries Permittees; LASH ZEMP, Parent; LUPITA ALVEREZ,
Director, Juneau Montessori Center
Attending via Teleconference: From an offnet site: GREG PETERSON,
Allied Charities of Alaska Association; From Anchorage: PERRY
GREEN; JOHN LOPEZ, President, Denali Gaming Supply, Inc.; LYNN
REESE, Owner and Operator, Lynn's Pull-tabs; TED BROWN,
Representative, Alaska Indoor Sports; JIM PEOT, General Manager,
Whaler Casino Supply; KENT HARTZBERG, Licensed Operator and former
State Auditor, Division of Games of Chance & Skill, Department of
Community and Economic Development; From Fairbanks: DAVID LAMBERT,
Fundraiser; GENE HANSEN, Representative, Fraternal Order of Eagles;
JUNE ROGERS, Executive Director, Fairbanks Art Association; TOM
ROGERS, Office Manager, Downtown Bingo; DAN THOMPSON,
Representative, C&A Distributors; STEVE EARLY; LAYNE ST. JOHN,
Executive Director, Yukon Quest International, Ltd.; JOELLEN FOX,
Pull-tab Operator/Dealer; ALLYN YANISH; Representative, Q&A
Distributors; From Nome: TIM SMITH, President, Nome Fisherman's
Association; From Sitka: PATTY MILLS, Gaming Manager, Sitka Tribes
of Alaska; SANDIE JOHNSON; From Kenai: LEN MALMQUIST,
Representative, Kenai Charities Co-op; From Kodiak: WAYNE STEVENS,
Executive Director, Kodiak Chamber of Commerce;
SUMMARY INFORMATION
SB 102-CHARITABLE GAMING REVENUE
Testimony was presented by the Department of Revenue and public
testimony was taken. The bill was held in Committee.
HB 229-PAROLE FOR MEDICAL/COGNITIVE DISABILITY
This bill was scheduled but not heard.
CS FOR SENATE BILL NO. 102(L&C)
"An Act increasing the amount of revenue received by the state
from charitable gaming activities; relating to taxes on pull-
tabs; and providing for an effective date."
Co-Chair Wilken stated that the Senate Rules Committee at the
request of Governor Frank Murkowski sponsors this bill. He noted
that the bill would increase "the State's charitable gaming tax
rate to five percent of ideal gross receipts for pull tabs which
generates $12.5 million." He continued that the Senate Labor and
Commerce (SL&C) Committee committee substitute, Version 23-
GS1131\Q, "instead places a 15-percent tax rate on the ideal net on
each series" distributed by a pull-tab operation, which he stated,
might generate approximately ten million dollars. He noted that a
proposed committee substitute, Version "Q", is before the Committee
and is accompanied by new fiscal note #2 from the Department of
Revenue.
LARRY PERSILY, Deputy Commissioner, Department of Revenue, informed
the Committee that the Administration's original bill would have
instituted "a significant change in how the pull-tab tax is
administered on charitable organizations" by taxing on gross
revenue rather than the existing three-percent of net on pull-tabs
"played." He continued that the original bill was changed by the
SL&C to tax at a 15-percent of ideal net which, he explained, is
the amount remaining after prizes are distributed with the
assumption that all of the pull-tabs in a game would be sold. He
exampled that $200 is the ideal net of a game consisting of 1000
one-dollar pull-tabs with an 80-percent payout. He furthered that
while both the current tax and the tax proposed in Version "Q"
collect on the net amount of the game, Version "Q" assumes that all
the pull-tabs in a specific game would be sold. He stated that in
order to meet the tax obligation, charities would make "internal
adjustments" such as negotiating operating expenses with operators
and vendors and adjusting prize payouts. He stated that the
original version of the bill proposed "a significant change" by
mandating, in statute, that no game in the State could payout more
than 68-percent in prizes as compared to the current average payout
of 78-percent. He explained that the intent of the lower payout
limit is to provide operators with additional funds to cover "the
higher tax burden"
Mr. Persily clarified that the Department's fiscal note #2 should
be correctly identified as CS SB 102(L&C) rather than CS SB
102(STA).
AT EASE 9:08 AM / 9:08 AM
Mr. Persily referred the Committee to a handout provided by the
Department titled, "Distribution of Dollars in Pull-Tab Games,"
[copy on file] dated May 9, 2003, which reflects the calendar year
2001 financial activity levels of the four types of pull-tab
operations in the State. He defined theses operations as follows:
Self-Directed Gaming Permittees are those that oversee their own
pull-tab operations; Multiple-Beneficiary Permittees (MBPs) occur
when several charities form a cooperative to run a gaming site;
Operators are for-profit businesses that contract with a charity to
sell its pull-tabs; and the Vendors category applies to permittees
that sell pull-tabs to a bar, which then sells the game to its
patrons. He specified that the charts depict the percentages of
revenue paid out for prizes; the current pull-tab tax; total
expenses; and the net profit to charities for each of the four
operations.
Co-Chair Wilken asked for confirmation that the four types of
categories currently operate in the State.
Mr. Persily affirmed. He reiterated that the charts reflect the
total monetary activities of the four operations for the year 2001.
He pointed out that pull-tab operators must determine whether the
money to fund the proposed tax increase would be subtracted from
prizes, profits, or expenses.
Co-Chair Wilken asked which of the operations is most prevalent.
Mr. Persily communicated that the "Self-Directed Permittees"
category conducted approximately half, or $126 million of the total
$274 million, of the 2001 pull-tab volume.
Co-Chair Wilken furthered that the chart indicates that the MBPs
and Operators each earned revenues of approximately $54 to $57
million and that Vendors earned approximately half that amount.
Mr. Persily concurred.
Senator Taylor asked which expenses could be deducted under the
ideal net proposal.
Mr. Persily responded that prizes and federal and local taxes would
be allowable deductions while payroll taxes, rent, and utilities
would be disallowed.
Co-Chair Wilken summarized that the definition of ideal net is "the
amount equal to the total amount of receipts that would be received
if every individual pull-tab in a series were sold at face value
minus the prizes to be awarded for that series."
Mr. Persily corrected his previous statement by clarifying that
allowable expenses would be limited to prizes and not to federal
and local taxes.
Senator Taylor asked for confirmation that a prize payout limit is
not specified in the SL&C committee substitute.
Mr. Persily confirmed that Version "Q" does not specify a prize
limit. He reiterated that the charitable organizations would make
the decisions "on how to come up with the money to pay the higher
tax."
Senator Taylor asked how pull-tab players would be notified of a
game's prize structure.
Mr. Persily responded that games are required to disclose what the
prizes are, but he continued, payout statistics are not required.
However, he voiced the understanding that "players become very
quickly educated" about which games pay out. Therefore, he reasoned
that "competition would dictate that" charities and games with a
low payout percentage would experience "players gravitating to
those games with a higher payout."
Senator Taylor opined that this "might be true" in a competitive
urban area; however, he asked what might occur were there "only one
game in town."
Mr. Persily stated that while there might be a single pull-tab
permittee in a community, more than one pull-tab game could be
offered. He continued that State statutes do not currently specify
a minimum or maximum payout level.
Senator Taylor understood that State statutes do not influence the
prize payout; however, he voiced "fascination" that the four
operations currently have prize payouts of approximately 78
percent. He asked whether the industry rather than the game
determines the payout range as he considers "this an important part
of the equation."
Mr. Persily responded that the payout range falls between 72 to 80
percent with the average payout being 78 percent. He informed that
charities could specify the prize payout percentage when they
purchase a game.
Senator Hoffman surmised from the aforementioned chart that the
expenses for the four types of pull-tab operations appear to be
"somewhat fixed due to [the] nature of [the] operation." Therefore,
he continued, the prize payout percentage and the net profit to the
charities would be the areas from which the new tax would be
funded. He stressed that as a result; this legislation might
negatively impact the level of money available for charity
donations and might ultimately require State assistance in some
manner. He opined that were this the resulting scenario, the "bill
would be for naught."
Senator Taylor asked whether revenue projections for video gaming
or a State lottery are available.
Mr. Persily responded that the revenue would depend on how the net
proceeds would be distributed. He elaborated that the revenue could
be shared, for example, between the State and charities or
municipalities. He voiced that projected revenue from a State
lottery would be "no more than one million dollars;" however, he
noted that were the State to join in a multi-state lottery, the
revenue could be higher. He summarized that numerous variables such
as the type of video gaming or lottery, prize payouts, the entities
involved in the revenue sharing, game limitations, and the
frequency of the lottery would affect the revenue.
Senator Taylor requested "a best case" revenue scenario for these
activities.
Mr. Persily responded that were the current video gaming
legislation adopted, the State could gross up to $50 million;
however, he continued that, after expenses, the State might net in
"the single digit numbers."
Co-Chair Wilken commented that public testimony would now be taken,
and he asked testifiers to limit their comments to two minutes. He
encouraged Committee members to ask questions of the testifiers and
noted that Senator Bunde, being a member of the SL&C committee,
might be able to provide further information to the Committee.
GREGORY PETERSON, Representative, Allied Charities of Alaska
Association, testified via teleconference from an offnet site and
commented that Senator Hoffman's comments regarding the negative
affect the new tax might incur upon charitable donations "was a
remarkable grasp" of the possible consequences of this legislation.
He stated that while the State might receive ten million dollars in
new revenue, the consequence might be the removal of "33 percent of
the money that charities have to give away." He stated that this
would compare to "the dog chasing its tail" as the State "would
lose more than it would gain" by being required to compensate
charities for the downturn in pull-tab permittees' charitable
contributions.
PERRY GREEN testified via teleconference from Anchorage and
suggested that a study be conducted to understand "the real affect"
of the committee substitute. He opined that the removal of 15-
percent of ideal net profit would "kill the industry," reduce jobs,
and destroy resources to 1,200 charities. He stressed that the
proposal needs more discussion and that the July 1, 2003 effective
date is premature. He concluded that this legislation is "little in
comparison" to legislation regarding revenue from North Slope oil,
and that these changes would be harmful to charities and the
benefits derived from pull-tab revenues.
JOHN LOPEZ, President, Denali Gaming Supply Inc., testified via
teleconference from Anchorage to state that the proposed ideal net
tax burden would force operators to lower prize payouts which, he
avowed, would deter players from participating. He continued that
this would result in pull-tab businesses either closing or reducing
operations, and, he asserted that there would be a snowball affect
on tax bases because supporting business, such as distributors,
would be harmed. He stated that a study should be conducted to
determine the impact of the legislation before it is enacted.
Co-Chair Wilken acknowledged that the Committee has received copies
of Mr. Lopez's written testimony and accompanying spreadsheet [copy
on file] dated May 5, 2003.
LYNN REESE, Owner/Operator, Lynn's Pull-tabs, testified via
teleconference from Anchorage and informed the Committee that her
small business would not survive the 15 percent increase specified
in this bill.
Senator Hoffman asked the number of employees in her business.
Ms. Reese replied six. She stated that some of them are single
parents, some are on welfare, and that she is flexible with their
schedules in order to make work a viable option for them.
TED BROWN, Representative, Alaska Indoor Sports, testified via
teleconference from Anchorage to state that enacting this
legislation this session provides insufficient time for operators,
the Legislature, and other affected individuals to become familiar
with the numerous "factors, terminology, and consequences" of this
legislation. He urged that time is provided to fully understand the
business and the impacts of this legislation before a vote be taken
that could "destroy" the industry.
Co-chair Wilken assured the testifier that, in addition to this
public testimony, legislators are reading the numerous letters and
e-mails in order to understand the impacts of the bill.
JIM PEOT, General Manager, Whaler Casino Supply, testified via
teleconference from Anchorage and urged the Committee to curtail
action on this legislation until an economic impact study has been
conducted. He communicated that due to the nature of his business,
he has contact with each of the four different pull-tab operations.
He continued that he has conducted an informal survey of those
operators, and he attested that the self-directed charities and
small operators would be severely impacted by this legislation. He
announced that the solution is not to lower the prize payouts as it
would negatively affect the number of players of a game. He voiced
support for a study to be conducted to gauge the impact of the
legislation.
GENE HANSEN, Representative, Fraternal Order of Eagles, testified
via teleconference from Fairbanks to share information with the
Committee regarding how the net profit generated from pull-tabs
contributes to a community. He noted that, over the past three
years, his Order has netted $122,000 in pull-tab revenue, although
he communicated that due to the economy and changes in alcohol
consumption laws, this amount is lower than previous historical
revenues. He noted that were this committee substitute adopted, the
15 percent of ideal net tax would equate to approximately $18,000
of the $122,000. He stated that the Order uses its net proceeds to
support local needs such as the Breast Cancer Detection Center and
funding Prostate Specific Antigen (PSA) blood tests for senior
citizens. He stated that were this level of tax implemented, the
Order would not be able to continue funding community needs as they
historically have. He urged the Committee to table this legislation
until further research has been conducted.
Senator Olson asked for further information regarding the PSA
testing that the Order supports.
Mr. Hansen explained that the Order provides funds to the local
senior health center to assist senior men in having the test
performed.
DAVID LAMBERT, Fundraiser, testified via teleconference from
Fairbanks to declare that the result of this legislation would be
"the obliteration" of MBPs, Operators, and a number of Self-
Directed Permittees. He stated that those that might survive would
be the larger operations such as the Moose and Elks Club fraternal
organizations that have other means of supporting their labor
costs.
Mr. Lambert relayed Senator Bunde's comments spoken in the SL&C
committee that "non-profits are lazy and should raise funds via
bake sales and raffles." Mr. Lambert contended this suggestion is
unrealistic as funds raised from these efforts would be inadequate.
He stated that this legislation is not going to work, and he urged
the Committee to table it, as the Committee, he opined, is unaware
of the devastation that would occur.
Senator Bunde noted his involvement in non-profit organizations
before the onset of pull-tabs, and he attested that sufficient
funds were raised to keep operations afloat. He stated that raising
funds without pull-tab revenues might be hard work, but it is do-
able.
JUNE ROGERS, Executive Director, Fairbanks Art Association,
testified via teleconference from Fairbanks that she is "very
concerned" about the bill's affect on local organizations as the
revenue garnered from pull-tabs supports local social services and
would be difficult to replace. She stated that this issue is
"misunderstood," and she urged the Committee to table this issue
until a later date in order for "a better decision" to be made. She
reminded the Committee that non-profit organizations, specifically
arts organizations, have undergone continuous funding reductions
over the past twenty years. She continued that these entities have
been sustained by diversifying funding endeavors using a variety of
methods, including collecting revenue from pull-tabs as well as
bake sales and other creative measures.
TOM ROGERS, Office Manager, Downtown Bingo, testified via
teleconference from Fairbanks in support of the testimony regarding
the negative impact that this legislation would have on the pull-
tab industry. He voiced that rather than the projected ten million
dollars in new revenue, the State "would raise nothing…because
there isn't going to be anything to tax." He stated that were prize
payouts reduced, the industry would suffer. He shared that the
result of this action would be similar to that of the Nenana Ice
Classic which suffered a "a 30-percent reduction in their gross
revenue" this year after ticket prices were raised from two dollars
to two dollars and fifty cents.
DAN THOMPSON, Representative, C&A Distributors, testified via
teleconference from Fairbanks and conveyed to the Committee that,
as a result of working with a variety of non-profit organizations,
he is aware that gaming is an important revenue source and that
this legislation "would do tremendous damage" to the industry. He
asserted that the proposed tax would reflect a simple economic law,
which is "increase the expenses, lower the profits." He stated that
this would negatively affect charitable contributions in the
community. He asserted that the Department of Revenue numbers are
"bad," and that the Department does not understand the economics of
the industry. He urged the Committee to table the issue until
further studies are conducted.
Co-Chair Wilken asked whether Mr. Thompson has a copy of the pie
chart information for the four types of pull-tab operations.
Mr. Thompson responded he did.
Co-Chair Wilken asked for clarification that while the prize
component averages 78-percent, the level is variable as game
operators could specify lower prize payout percentages.
Additionally, he asked whether "the prize component could become
one of the components that is reduced in order to pay the
additional tax."
Mr. Thompson responded that some entities would adjust or maintain
the prize payout levels depending "on the profile of the operation
and what their players will accept."
Co-Chair Wilken asked whether it would be "too simple" to increase
a charity's net profit by three percent by lowering the average
prize payout from 78 percent to 75 percent.
Mr. Thompson responded that this would be "too simple of a way to
look at it;" although he believed that a portion of the money to
pay the tax would be drawn from the prize structure.
Co-Chair Wilken acknowledged that the prize payout could be
adjusted.
Senator Bunde informed the Committee that, by law, charities must
receive a minimum of 30-percent of the pull-tab operation revenue;
therefore, he asserted an operator must decide whether "it is in
their interest to stay in business."
[NOTE: The following testifiers presented in Juneau.]
MARIA MOYA, Member, Southeast Alaska Friends of Montessori,
informed the Committee that this is a non-profit organization that
promotes educational opportunities in the Juneau area.
SFC 03 # 84, Side B 09:50 AM
Ms. Moya urged the Committee to amend the committee substitute to
include "a statewide prohibition of local sales taxation of pull-
tab receipts." She shared that with the net revenue it receives
from its pull-tab gaming permit, the Juneau Montessori community
program provides a wide variety of educational programs including a
high qualify preschool program, a kindergarten program, and an
elementary program with a total enrollment in excess of 120
students.
Ms. Moya expressed that were this legislation adopted without this
exemption, the resulting affect on the Montessori program "would be
profound." She elaborated that currently the program pays a city
tax that equates to 25-percent of the ideal net receipts. She
stated that the addition of an additional 15-percent of ideal net
tax, as proposed in the committee substitute, would mean the
overall tax burden of the program would be approximately 40-
percent. She asserted that with overhead expenses and prize
payouts, the current programs would not be viable under that
circumstance. Thus, she concluded, a downsizing or discontinuation
of programs, specifically the kindergarten program that has served
approximately 1,600 children during its 18-year operation, would
result. She stated that closure of the kindergarten program, which
is the foundation for the other levels of the Montessori program,
"would have a chilling rippling affect." She requested the
Committee to carefully consider the affect this legislation has on
small businesses and, in particular, address the double-taxation
issue.
Senator Bunde asked regarding the tuition structure for students.
Ms. Moya replied that there is a tuition charge at the preschool
level.
Senator Bunde asked for confirmation that the program's current
City and Borough of Juneau taxes amount to approximately 25-percent
of ideal net.
Ms. Moya confirmed that current local taxes equate to approximately
25-percent of ideal net.
Senator Bunde surmised therefore, that contrary to testimony
attesting "that economic collapse" would result at a 25-percent of
ideal net taxation level there are charity programs that currently
function successfully at that level.
Ms. Moya commented that were this legislation to be adopted, the
additional tax would put the organization under.
Senator Taylor asked how a statewide four-percent sales tax would
affect the program assuming the legislation was amended to prohibit
local sales taxes being collected on pull-tab revenue.
Ms. Moya responded that options might include distributing a
portion of the receipts from those taxes back to municipalities.
Senator Taylor asked whether the intent would be to funnel those
funds through to organizations such as the Montessori program.
Ms. Moya clarified that rather than be directed to programs, the
funds would allow a municipality to replace the revenue lost by the
pull-tab sales tax exemption.
Senator Taylor asked for further information regarding the amount
the organization is currently taxed on its pull-tab sales.
Ms. Moya clarified that the organization is required to pay five-
percent of gross which equates to 25-percent of ideal net receipts.
Senator Taylor asked how an eight-percent sales tax, comprised of
the five percent City tax and a three-percent statewide tax, might
affect the organization.
Ms. Moya remarked that this would make the situation "even more
difficult."
ALBERT JUDSON, voiced opposition to the bill as it "would shackle
the benevolent efforts" of local entities by imposing unrealistic
requirements on pull-tab operators. He stated that were this
legislation to be adopted without further study being conducted,
"it would create a fiscal experiment at the expense of low income
people," who "should not be targeted" to solve the fiscal problems
of the State.
BOB LOESCHER, President, Juneau Tlingit & Haida Community Council,
communicated to the Committee that the self-directed local gaming
organization has been involved in gaming activities in excess of
thirty years and that the net profits have allowed the organization
to build a community center and support numerous internal
charitable groups as well as local schools and the elderly. He
informed the Committee that were this bill's regulations applied to
the organization's December 31, 2002 pull-tab report that was
submitted to the State, the net income to the organization would
have been sufficiently impacted.
Furthermore, Mr. Loescher asserted that the organization would be
forced out of compliance with the State's 30-percent requirement
and would be forced to relinquish its permit. He noted that were
the five-percent local tax factored in, the cumulative tax would
amount to 43-percent of ideal net, and that a Statewide sales tax
would further increase the overall tax amount. He urged the
Committee to hold the bill and reconsider its impacts.
GEORGE WRIGHT, Operator, former Self-Directed Permittee and former
Charitable Gaming Task Force member, declared that the Department
of Revenue does not have a grasp on charitable gaming as is
substantiated by the fact that the aforementioned pie charts are
incomplete in that they do not reflect the three-percent tax that
gaming entities are required to pay to the State upon the initial
purchase of the pull-tabs. He asserted that this is a complex
situation that requires further study. He attested that were
charitable revenues reduced, such things as school sport programs
would be negatively affected as they are funded primarily by
charitable organizations. He stated that a gambling commission
should be formed to study the industry and make recommendations
addressing such things as the impact of the three-percent State
tax, local sales taxes, and the proposed 15-percent on ideal net
tax. He stated that were this tax imposed as presented, "70-percent
of the charities would be forced to close," his organization would
lose 100 employees, and that other entities such as the Alaska
Native Brotherhood organization would lose 90 percent of its
funding.
AGNES D'CAFANGO, Gaming Industry Employee, testified that it
appears "that the State is not against gaming," so she pondered why
the State does not incorporate a lottery and "leave the charities
alone that are struggling to make it now." She asked whether the
revenue generated from this bill would be used to fund State health
care.
Co-chair Wilken stated that the money would be deposited into the
general fund and used for multiple purposes, including some health
care.
Ms. D'Cafango asserted that, "the State should earn its own money
instead of taking it from charities." She stated that rather than
penalize charities in this manner, the money could remain in the
organization and be used to elevate counter staff salaries.
[NOTE: Statewide testimony resumes.]
LEN MALMQUIST, Representative, Kenai Charities Co-op, testified via
teleconference from Kenai and voiced opposition to the bill. He
attested that this legislation would result in a 500-percent tax
increase that would impact each charity in the State. He disclosed
that the historical high level of pull-tab revenue occurred in the
year 2001 and that using that data as the basis for the pie charts
"is misleading you at best." He continued that pull-tab revenue in
his region is down this year from the previous year, and that any
decline in charitable contributions would force recipients to turn
to the State for assistance. Furthermore, he asserted that the
Department of Revenue fiscal note does not anticipate the shift
from charitable funding to the State. He continued that in
addition, the loss of potential jobs and "the trickle down" affect
of the legislation are not reflected. He stated that local Kenai
charities fund substantial projects such as sports events,
scholarships, food banks, fire fighting training, and more. He
advised that were this legislation adopted, these things could not
be funded and he questioned whether "the State would pick them up."
In conclusion, he urged for a study to be conducted to determine
the minimal overall fiscal impact and what the "trickle down
affect" would be.
WAYNE STEVENS, Executive Director, Kodiak Chamber of Commerce,
testified via teleconference from Kodiak and communicated that the
Chamber operates a Self-Directed, Multi-Beneficiary Permit gaming
operation. He mentioned that separate electronic gaming legislation
specifies an 85-percent prize payout whereas pull-tabs average a
78-percent payout. He stated that the discussion to reduce the
pull-tab payout is being conducted "without any corresponding
discussion about the psychology of gaming and what that does to the
play." He labeled the aforementioned pie chart as "misleading,"
particularly "as it includes the one percent tax on annual net
proceeds but very conveniently includes the three-percent tax that
is currently paid on the ideal net to the State in the expense
slice." He shared that his organization's 2002 permit's ideal net
was approximately $729,000 with $22,000 paid to the State as a
result of the three-percent tax. He continued that were the 15-
percent of ideal net adopted, his organization's tax component
would be approximately $109,350 which, based on the year 2002
numbers, would leave the Chamber with a net profit of $5,000. He
stated that at that point, the organization would choose not to
continue its gaming activities and would thereby terminate three
employees and the ability to fund multiple community needs. He
urged the Committee to further study the legislation.
Senator Taylor voiced concern about testifiers' assertions that the
Department of Revenue is misleading the Legislature by including
the one percent State tax on the chart but not specifying the three
percent tax that is paid.
Mr. Stevens responded that according to his organization's 2002
Permittee Annual Financial Statement, the one percent State tax on
net proceeds amounted to $845. In addition, he continued, the
organization paid approximately $22,000 in the form of the three
percent tax. He continued that the 15-percent of ideal net tax
would increase the amount to approximately $109,000 that in effect
would reduce the organization's net proceeds from $92,000 to
approximately $5,000.
Senator Taylor asked how the three-percent tax is determined.
Mr. Stevens clarified that the three percent tax is paid on the
ideal net when the charity purchases the game. He voiced the
understanding that this tax is included in the "total expense"
section of the pie chart.
In response to a question from Senator Taylor, Mr. Stevens
clarified that the three-percent tax is a tax on the ideal net at
the time a game is purchased whereas the one-percent State tax is
paid on the net proceeds as presented on the year-end financial
statement.
Co-Chair Wilken surmised that the three-percent tax is included in
the total expense information.
Mr. Stevens "assumed" that it is.
Co-chair Wilken stated that the footnote on the pie chart reads as
follows.
"For purposes of this presentation, federal and local taxes
have been combined into the expenses category but the state
pull-tab tax has been set out separately from expenses."
Co-chair Wilken stated that clarification regarding this "upfront
tax on pull-tabs" would be forthcoming from the Department.
TIM SMITH, President, Nome Fisherman's Association, testified via
teleconference from Nome in opposition to the bill on behalf of the
Self-Directed Permittee association. He stated that this 500
percent tax increase would "kill the goose that lays the golden
eggs." He shared how important pull-tab sales are to local
governments, particularly those small communities in Bush Alaska,
which acquire the majority of their local operating funds from
pull-tab sales. Additionally, he voiced concern that communities
such as Nome, which has a local four-percent sales tax, would be
negatively affected by a loss of revenue from negatively affected
pull-tab operations.
Mr. Smith explained that the one-percent pull-tab tax category
reflected on the pie chart equates "to one percent of the gross"
revenue. However, he declared, "that this is not a realistic way to
look at pull-tab revenues" because there is quite a bit of
difference between gross sales and ideal net revenue. He stressed
that were this legislation adopted, the one percent increment on
the chart would be increased fivefold with the net profit being
lowered by that amount. He exampled that were this to occur, using
the data on the "Operators" chart, the one-percent increment for
the pull-tab tax would increase to five percent and the charities'
six-percent net profit increment would decrease to one-percent.
Mr. Smith noted that rather than collect $1.04 for a pull-tab,
charities in Nome collect ninety-six cents on a one-dollar pull-tab
because they absorb the four-percent local tax. He stated that this
action and the three-percent State tax paid on each pull-tab
affects ideal net. Therefore, he asserted that the charity, in
reality, collects ninety-three cents for each one-dollar face-value
pull-tab when both the local and State taxes are factored in. He
stated that were the State tax to increase to 15-percent of ideal
net, it "makes our math even worse." Additionally, he stated that
in order to entice individuals to purchase the few remaining pull-
tabs of a particular game, pull-tab operators must offer
incentives, thereby creating more loss. He asserted that all of
these things factor into the net profit.
Mr. Smith suggested that, rather than target pull-tab operators
with additional taxes, the tax base should be expanded to allow
video gaming and "perhaps a State lottery."
Co-Chair Wilken asked whether local and State taxes could be
assessed from the prize payout category rather than the net profit
category.
Mr. Smith responded that paying the taxes from the prize category
would require prize payouts to be reduced, and he declared that the
current payout return has reached the limit of what players "would
tolerate." He noted that contrary to the Department of Revenue
testimony, the percentage of payout is posted and players "know
exactly" what the prize payout is for each game. He declared that
players would either "quit" or cut back on playing games were the
prize payout lowered.
Co-Chair Wilken surmised therefore, that pull-tab players would
quit playing a 50-percent payout game and would seek out a higher
payout game.
Mr. Smith concurred and stated that lower prize payout games are
currently available, but they are not being played.
Senator Bunde asserted however, that were a statewide percentage
payout level incorporated, players would not have different
choices. He opined that players would not stop gambling.
PATTY MILLS, Gaming Manager, Sitka Tribes of Alaska, testified via
teleconference from Sitka and spoke to the negative impact that
this legislation would incur on the organization's ability to fund
local charities. She requested that an impact study be conducted
before further action was taken.
Senator Bunde asked whether "outside of Sitka" charitable
organizations are allowed to sell their pull-tab games in Sitka.
Ms. Mills replied that the City of Sitka recently adopted
regulations prohibiting out-of-town pull-tab operations.
SANDIE JOHNSON testified via teleconference from Sitka and spoke of
the benefits community charities receive as a result of pull-tab
revenue. She stated that this source of revenue has additionally
lessened the demand on local and State government for funding and
support. She voiced that the testimony being presented to the
Committee is both knowledgeable and accurate. She urged the
Committee to conduct an impact study, as she stressed, this
legislation would "greatly impact" charities, communities, and
governments.
KENT HARTZBERG, Licensed Operator and former State auditor,
Division of Games of Chance & Skill, Department of Revenue,
testified via teleconference from Anchorage and commented that
while "this legislation might look good on paper, in reality, it's
just not going to work." He stated that "gaming is an entertainment
business," and were the prize payout lowered to 68-percent as
proposed by the Governor, "people would just not play." He noted
that it takes up to two months to sell all the pull-tabs in a game,
and he furthered "that from an operational standpoint," a tax
increase from three-percent to 15-percent on ideal net would incur
a substantial tax bill. He attested that "it would be much better
to fine tune" this legislation before it is enacted.
Senator Bunde wondered how the odds for winning the Nenana Ice
Classic compare to the prize payout for pull-tabs because he
understood that the number of Ice Classic tickets being sold is
increasing annually. Furthermore, he commented that while there is
increasing support for implementation of a State Lottery, the
chances of winning that are less than that of pull-tabs. He stated
that the continuing growth of the Ice Classic ticket sales and the
support of a lottery, contradict the testimony against this
legislation.
STEVE EARLY, testified via teleconference from Anchorage, to voice
that this legislation "would tax the gaming business out of
business in one fell swoop." He continued that rather than the
State gaining revenue, it would cost the State money, as the
charities currently benefiting from the pull-tab revenue would be
required to seek replacement assistance from the State.
Additionally, he shared that his twelve years of experience in the
gaming business have taught him that running a game with a 77-
percent average payout works best as those that return higher
payouts sell out within two days and those with lower payouts "do
not move." He stated that customers "are on the edge now" and
lowering the payout would result in the loss of players. He stated
that the fallout of failed pull-tab business would be job losses,
sales tax losses, supporting businesses losses, and real estate
losses.
LAYNE ST. JOHN, Executive Director, Yukon Quest International,
Ltd., testified via teleconference from Fairbanks to state that he
does not support the 15-percent of ideal net tax as it would hurt
the industry too much. He stated that currently, the organization
currently pays approximately $600 a monthly in State taxes;
however, he calculated that this amount would increase to
approximately $3,000 a month, "straight out of the non-profits
pocket as the bill now reads." He spoke of the difficulty that this
legislation would incur to the operators, although he stated that,
while the industry would not be able to continue to support other
charities or community events at current levels, he doubted that it
would "kill" the industry. He affirmed that the State currently
receives a three-percent tax on the purchase of the pull-tabs and
an additional one-percent of the entity's gross gaming revenue at
the end of the year.
JOELLEN FOX, Pull-Tab Operator and Dealer, testified via
teleconference to affirm that lowering pull-tab prize payouts would
lower the gross sales of the pull-tab operators. She reviewed the
history of this legislation, and she urged the Committee to become
further educated on the pull-tab industry before any decisions
regarding it are made. She stressed that, "a 15-percent tax is not
the answer" as it would have a devastating affect on the industry.
ALLYN YANISH, Representative, Q&A Distributors, testified via
teleconference from Fairbanks and informed the Committee that the
proposed tax burden would exceed the cost of the product. He
presented calculations regarding the cost of a box of pull-tabs to
the industry and how the ideal tax on net would affect it. He
voiced the understanding that the Republican Party's platform is to
reduce taxes and stimulate growth and revenue. He voiced the need
for the industry and the State to work together to develop an
equitable plan to accomplish these goals.
[NOTE: The following testimonies are presented in Juneau.]
DAVID KATZEEK, Member, Alaska Native Brotherhood, stated that
"number crunching" this issue appears to result in seemingly
positive benefits to the State. However, he asserted that "15-
percent of nothing is nothing." He stated that charities perform
important functions in communities, and he asked that more study be
conducted on this issue before further action is taken.
ELLIE MORITZ, Pull-Tab Dealer, Alaska Native Brotherhood Hall,
informed the Committee that pull-tab revenues have been declining,
as people are not playing as frequently or for as long as they used
to. However, she noted that the players are educated in the various
games being played.
SFC 03 # 85, Side A 10:38 AM
Ms. Moritz continued pull-tab game players "are wise to the
payouts" of the various games, and subsequently do not play the
games with low percentage payouts.
DAVID SANDEN, Coordinator, Juneau Multiple-Beneficiary Permittees
informed the Committee that this group of permittees includes the
Juneau Montessori Center, Juneau Dance Unlimited, and Southeast
Alaska Friends of the Montessori. He confirmed that the industry
does make money; however, he stated that were this legislation
adopted without the exemption of local sales taxes, then numerous
organizations would not be able to operate. He noted that a
financial report of his operation has been provided to the
Committee [copy on file] for their review. He stated that while the
industry is able to pay a tax, the 15-percent of ideal net combined
with local taxation levels would be devastating. He exampled that a
one-dollar bill equals to one pull-tab and, of that dollar, 80
cents is delegated for prize payouts with the remaining 20 cents
being the organization's adjusted gross income. He specified that
support for local charities, local sales taxes, and the State's
three-percent tax are paid from that 20-cents.
Mr. Sanden furthered that it would not be feasible for
organizations to pay both a 15-percent State tax and a local tax.
He suggested that the Committee consider completely eliminating the
State tax and raising the 30-percent minimum return to non-profits
to a 50-percent minimum. He urged the Committee to amend the
legislation to prohibit double taxation caused by local sales
taxes.
Co-Chair Green asked how organizations such as those Mr. Sanden
represents arrived at the decision to use pull-tab funds as a
funding source for education.
Mr. Sanden responded that the organizations' Boards of Director
would need to answer that question; however, he opined that, in his
perspective, "every Board of Directors that gets involved in gaming
faces an ethical dilemma" in determining whether "the ends justify
the means."
Co-Chair Green commented that an alternative to gaming receipts
would be a tuition or fee based system.
Mr. Sanden noted that the Montessori School has a tuition program.
Senator Olson asked whether Mr. Sanden would support an amendment
that would prohibit local sales taxes from being charged on the
industry.
Mr. Sanden responded that were local sales tax prohibited, then the
15-percent of ideal net tax would be acceptable.
LASH ZEMP, Parent, testified that his three children have attended
the Juneau Montessori Center program because it provides quality
pre-school activities. He stated that, in as much as it may bother
him "philosophically" that the school raises funding from the sale
of pull-tabs, the reality is that the pull-tab revenue has allowed
the program "to survive." In response to Co-chair Green's comment
that tuition is an alternative method of supporting the program, he
noted that families with children attending the Juneau Montessori
program pay a "hefty tuition" which supports staff training that is
a key element as "long-term staff" is "crucial to the success of a
program as it provides continuity." He advised that were this
legislation to be implemented, the concept of "charity gaming"
would be replaced with "gaming with taxation" as the charities
would no longer receive benefits. He asserted that bake sales and
other local fundraisers, alone, do not provide sufficient revenue;
however, he stated that these things, combined with pull-tab
revenues and tuition, have allowed the program to be self-
sufficient as opposed to being forced to seek a local government
subsidy.
LUPITA ALVEREZ, Director, Juneau Montessori Program, reported that
the Montessori program depends on pull-tab revenue to assist in
offsetting the tuition expense children in the program would be
required to pay otherwise. She stated that the loss of this tuition
assistance would be a hardship on families. Furthermore, she noted
that State childcare grants and childcare assistance programs are
reportedly going to receive less funding thereby limiting other
avenues of support in addition to having a negative effect on some
families in the program who currently receive assistance. She
mentioned that until children reach the age of five, free education
opportunities are non-existent in the State and families are
required to pay for pre-school programs.
Senator Bunde communicated that this issue would be further
studied, with particular emphasis on the definition of a charity,
during the Legislative interim by a subcommittee comprised of
Senator Ralph Seekins and Senator Hollis French. He noted that
other issues, including outside charities operating in communities,
would also be addressed.
The bill was HELD in Committee
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 10:52 AM
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